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Last mile delivery: A pain point of online shopping
March 2017
E-com
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Business Model Innovation in China's Logistics Market(Part 1) Management Theories and Business Models Winnie Lo
Key takeaways
2
Other than thin margin, express delivery companies have to fight against high cost and lack of labour supply. Also, some of them have to strive a balance between service quality control and achieving economies of scale via franchisees
Express delivery companies used to be the key players in last mile delivery. Lately, they earn less than ever. Some of them go public to raise capital for future growth and business diversification
Problem facing last mile delivery is just the tip of the iceberg of the entire e-commerce logistics sector. More works are needed for improving logistics efficiency
Adoption of big data analytics is one of the critical success factors for e-commerce logistics
To enhance the consumer experience, major e-commerce players in China seek total logistics solutions. Some stakeholders invest in innovative last mile delivery solutions
Waiting for the online purchase is not always an exciting experience
3 Source: China E-commerce Research Centre, compiled by Fung Business Intelligence
What are the pain points of online shopping in China?
Online shopper in China
Last mile delivery
product quality
information security
fake goods
intellectual property
Major problems related to last mile delivery
4 Source: Sina Weibo, compiled by Fung Business Intelligence
Sina Weibo counted the number of blog posts related to last mile delivery in 2016. The most mentioned problems related to last mile delivery were:
Damaged parcel
packaging
Poor services
Long delivery
lead time
Parcel loss
Damaged goods
4,333,894 blog posts
4,181,423 blog posts
3,703,847 blog posts
2,074,845 blog posts
1,500,259 blog posts
Who handles the last mile delivery?
5
Traditionally, express delivery company is the major player providing basic door-to-door delivery services
6
• Headquarter: Beijing • Found in 1985 • State-owned enterprise • Business model: direct • Business focus: mail and parcels
• Headquarter: Shanghai • Found in 2000 • Privately-owned enterprise • Business model: 73.2% franchise • Business focus: e-commerce parcels
• Headquarter: Shanghai • Found in 1993 • Privately-owned enterprise • Business model: 94.7% franchise • Business focus: e-commerce parcels
Source: Industrial Securities, Northeast Securities, Head SCM, company websites, compiled by Fung Business Intelligence
• Headquarter: Shanghai • Found in 2002 • Privately-owned enterprise • Business model: 91.9% franchise • Business focus: e-commerce parcels
• Headquarter: Shanghai • Found in 1993 • Privately-owned enterprise • Business model: 58.5% franchise • Business focus: e-commerce parcels
• Headquarter: Shenzhen • Found in 1993 • Privately-owned enterprise • Business model: 100% direct • Business focus: high value parcels
14.7%
14.3%
12.4%
10.5% 8.2%
6.2%
Market share of China’s express courier market in 2015 (by number of orders)
More online shopping, more e-commerce parcels… but do the express delivery companies earn more?
7
• Transaction value of online shopping reached RMB 5,160 billion in 2016, which was 40 times more than the value in 2008
• The surge in online shopping also stimulates the demand for express delivery. The number of parcels handled by express companies in 2016 was 31 billion, up from 1.5 billion in 2008
• The annual growth rate of parcels number has outweighed the annual growth rate of the transaction value of online shopping since 2012. It reflects that the average value of parcels is decreasing
138%
105%
75% 70%
51% 59%
47%
33% 26% 26% 23% 26%
57%
55% 62%
52% 48% 51%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Annual growth of the transaction value of online shopping
Annual growth of the number of e-commerce parcel handled
Source: National Bureau of Statistics of the PRC, State Post Bureau of the PRC, compiled by Fung Business Intelligence
No, China’s express delivery companies earn less than ever. Average domestic express charge per order dropped sharply from RMB 30 in 2006 to RMB 13 in 2015
• The reduction in average express shipping charge per order may due to:
– Some express delivery companies expand their network coverage and reach economies of scale by adopting franchise model. Hence, delivery cost has been gradually reducing, but sometimes, service quality may not be fully controlled by the headquarter
– Some express delivery companies compete for the market by using cut-throat price war, but sometimes, give up the service quality
8 Source: Industrial Securities, compiled by Fung Business Intelligence
2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015
Gross profit per order (RMB) Net profit per order (RMB)
1.14
0.54 0.70
0.38 0.51
0.28
0.63
0.30 0.41
0.23
0.48
0.28
0.80
0.12
0.73
0.27
0.70
0.32
0.62
0.22
0.71
0.42
2013 2014 2015
6.14
1.79
4.09
0.75
4.75
1.16
Box 1: The Chinese couriers have to work very hard for a living
9 •Survey respondents n = 4539 Source: Aliresearch, people.cn, compiled by Fung Business Intelligence
• Daily steps: 16,000
• Daily travel: 20 km
• Daily calls: 100
• Daily parcels delivered: >200 pcs (peak seasons)
There are 1.2 million couriers in China. The total distance travelled by all couriers in one year equals the distance travelling round the earth 217,000 times
Do they earn a lot? Monthly salary, % of survey respondents*
RMB <2,000
RMB 2,001 – 4,000
RMB 4,001 – 6,000
RMB 6,001 – 8,000
RMB > 8,000
11.9%
53.4%
28.6%
5.4%
0.7%
Box 2: The decline in average express charge varied among different cities
10
Top 20
City
Total revenue of express delivery
(RMB billion, 2016)
Average revenue
per order (RMB, 2016)
Changes in average revenue
per order (RMB, 2016 vs. 2015)
1 Shanghai 71.0 27.3 0.6
2 Shenzhen 29.8 14.6 -1.3
3 Guangzhou 27.5 9.6 -0.4
4 Beijing 25.7 13.1 0.2
5 Hangzhou 19.6 10.8 -0.6
6 Dongguan 12.3 11.5 0.1
7 Jinhua (Yiwu) 12.0 7.1 -0.8
8 Suzhou 11.4 13.4 -2.3
9 Chengdu 6.9 11.3 -0.5
10 Tianjin 6.3 15.5 -1.5
11 Nanjing 6.1 12.8 0.9
12 Wuhan 6.0 11.0 -0.5
13 Ningbo 5.8 11.5 -1.6
14 Zhengzhou 5.2 12.2 -0.8
15 Wenzhou 4.8 8.3 -1.2
16 Quanzhou 4.6 8.3 -0.5
17 Wuxi 4.5 12.9 1.2
18 Chongqing 3.9 13.7 -0.2
19 Foshan 3.7 12.6 -0.8
20 Jiaxing 3.6 10.8 -0.6
Beijing
Chongqing
Guangzhou
Zhengzhou
Hangzhou Shanghai
Ningbo
Shenzhen
Tianjin
Suzhou Chengdu
Yiwu
Dongguan
Nanjing
Wuhan
Wuxi
Jiaxing
Foshan
Quanzhou
Source: State Post Bureau, compiled by Fung Business Intelligence
Wenzhou
11
Other than thin margin, more challenges facing the express delivery companies …
• Express delivery companies have a difficulty to strive a balance between achieving economies of scale via franchisees and controlling service quality
• It is not cost efficient for the express delivery companies to invest in delivery resources at the same level throughout the year; however, without preparing for the peak promotional seasons, they may not able to fulfill massive orders
• Many online shoppers prefer receive their parcels during off hours at home. However, express delivery companies try to provide delivery services during day time, as the cost of night shift couriers is higher than that of day shift staff
• Couriers may have to fulfill a single order by paying more than one visit to a shopper, as either party missed the delivery appointment. Cost efficiency and productivity are very low
• More online shopping, more parcels to be fulfilled. There is excess demand for couriers
• Express delivery companies compete for the delivery personnel by offering better compensation packages, which incur a higher cost
• On the other hand, many online takeaway platforms emerge in China. Some couriers quit their job and join online takeaway companies, which offer a higher unit wage per meal delivery order and flexible working hours
High cost of providing door-to-door delivery service
Different expectation on delivery time and poor consumer experience
Keen competition for labour
Challenges facing the last mile delivery
12 Source: compiled by Fung Business Intelligence
Innovation in last mile delivery
13
High cost of providing door-to-door delivery service
Different expectation on delivery time and poor consumer experience
Keen competition for labour
Crowd-sourced delivery service • The services are mainly provided by part
time workers or freelancers, who spend their idle time
• Flexible supply of delivery personnel reduces the risk of e-commerce companies and express delivery companies
Parcel pick-up point • Some e-commerce companies and express
delivery companies set up pick-up points or partner with local stores to provide parcel pick-up services
• Online shoppers can pick up their parcels at their convenient time
Smart locker • Other than establishing pick-up points, setup
smart locker is another innovative solution tackling the shortage of courier supply
• Couriers can unload the parcels to smart lockers. Their overall efficiency are improved, as they no longer need to wait for the shoppers and able to deliver more parcels
• Again, online shoppers can pick up their parcels at their convenient time
Picture source: Internet Source: compiled by Fung Business Intelligence
Solutions Challenges
Cainiao guoguo
NewDada
Sposter Hivebox
Alibaba partners with express delivery companies and uses third-party operated smart lockers
Alibaba’s solution JD.com’s solution Third-party’s solution
RRKD
Cainiao terminal
JD pick-up points
Convenience stores,
local stores or
third-party pick-up points
JD smart locker
Third-party
14
Today, express delivery companies…
Express delivery companies diversify their businesses from providing basic last mile delivery services to offering inter-city delivery services, warehouse services, e-commerce, logistics finance, etc.
15
Number of delivery terminals in China
Number of franchisees
Average orders handled per delivery terminal (p.a.)
10,000+ 256,800 1,495
24,000+ 108,400 2,800+
12,000+ 196,900
23,000+ 128,100 7,700
24,000+ 126,300 2,610
Number of distribution centres
57
82
82
74
294
Source: Industrial Securities, compiled by Fung Business Intelligence
Facilities and network coverage of the listed express delivery companies in China
Number of planes owned
5
38 0
0
0
0
Major privately-owned express delivery companies in China go public to raise capital for future growth plans
16
Dec 2016
Oct 2016
Jan 2017
Listed on NYSE
Listed on SZSE Completed its
backdoor listing
Feb 2017 Listed on SZSE
Completed its backdoor listing
Listed on SHSE Completed its
backdoor listing
Listed on SZSE Completed its
backdoor listing
Problem facing the last mile delivery is the tip of the iceberg of China’s e-commerce logistics sector. More works are needed for improving the efficiency of the sector
17
E-commerce logistics not only involves express delivery, but also is supported by many upstream stakeholders providing holistic logistics solutions
18
Self-operated logistics by e-commerce company
Crowd-sourced delivery
Logistics park
Express delivery
Smart locker operator
Third party logistics service provider
Logistics data analytics platform
Line-haul truck matching platform City logistics matching platform
Warehouse
Source: compiled by Fung Business Intelligence
Deppon
Huolala
Market landscape in China
To reduce the “pain” level of online shoppers, major e-commerce players in China seek total logistics solutions
19 Source: iResearch, company websites, compiled by Fung Business Intelligence
• Self-operated warehouses: 4 airport hubs, 12 automated distribution centres, 660 city distribution centres
• Self-operated delivery: Total 10,000 delivery stations
• Self-operated warehouses: 7 smart fulfillment centers and 254 warehouses
• Hybrid model in delivery
• Total 6,780 delivery stations and pickup stations in 2,646 counties
• Own Pinjun Express, handling 90% of the orders of VIP.com
• Warehouses are mainly owned by Cainiao, a 47%-owned affiliate of Alibaba Group, and operated by partners, e.g. Alog, Best Logistics, etc.
• Warehouse network covers 250 cities; in which, 200 warehouses are equipped with smart storage system
• Outsource delivery: partner with YTO, STO, ZTO, Yunda, SF Express, Best Express, EMS, etc.
Market share of the major B2C e-commerce players in China, 2016
56.6% 24.7% 4.3% 3.5% 10.9% Others
Self-operated model Partnership model
Adoption of different logistics models
Partnership model:
Alibaba is keen on acquiring logistics companies. Its affiliate, Cainiao, orchestrates the stakeholders via big data analytics
20
Milestones (domestic e-commerce) Company background • Cainiao Logistics is a
47%-owned affiliate of Alibaba Group • It operates a logistics data platform that
leverages the capacity and capabilities of logistics partners to fulfill e-commerce orders
2013 Cainiao was established by a consortium. Major shareholders include Alibaba Group, Chinese retailer Intime Group, Chinese conglomerate Fosun Group, SF Express, and four Chinese courier companies: STO, YTO, ZTO and Yunda Express
2014 Cainiao invests in KXTX, a line-haul truck matching platform
Alibaba invests in Alog, a LSP and warehouse operator
Cainiao allies with China Post
2015 Alibaba invests in YTO Express
Alibaba invests in Suning. Cainiao allies with Suning logistics
Cainiao launches a cloud-based logistics platform in China
2016 Cainiao obtained a RMB 10 billion financing from top sovereign fund investors including Singapore’s GIC and Temasek, Malaysia’s Khazanah Nasional Berhad and China’s Primavera Capital Group
Cainiao invests in Dianwoda, a crowd-sourced delivery platform
2017 Alibaba increases its investment in RRS logistics, an affiliate of Haier Group. Cainiao allies with RRS logistics
Core services (domestic e-commerce) • Provide warehouse solutions for e-stores on
Tmall and Taobao marketplaces • Orchestrate express companies, warehouse
operators and LSPs on Cainiao system via big data analytics
• Offer one-stop-shop rural e-commerce logistics solutions
• Support store pick-up and return goods services for online shoppers at physical Cainiao terminals and local stores
Source: company websites, compiled by Fung Business Intelligence
Number of parcels generated on 11. 11. 2009: 0.26 million
Adoption of big data analytics is the solution for fulfilling numerous orders within a very short period of time
21
11.11 Singles’ Day : Annual examination of China’s logistics sector
2009 2010 2011 2012 2013 2014 2015 2016
Number of parcels generated on 11. 11. 2016: 657 million
Number of days spent on fulfilling 1st 100 million parcels generated on Singles’ Day is decreasing.
Why so fast?
• Big data analytics assists in demand forecasting, inventory management, consolidation, route planning and real time tracking
• Upgrade of logistics facilities and infrastructure
Source: Alibaba, compiled by Fung Business Intelligence
Nov
11
Nov
11
Nov
11
Nov
11
Nov
12
Nov
12
Nov
12
Nov
12
Nov
13
Nov
13
Nov
13
Nov
13
Nov
14
Nov
14
Nov
14
Nov
Nov
15
Nov
15
Nov
16
Nov
16
Nov
17
Nov
18
Nov
19 2013
2014
2015
2016 13 ½
Box 3: Interesting facts of Singles’ Day 2016
• 657 million parcels were generated on 11.11.2016. If laid side by side, the parcels span five times the area of Macau
• Around 2.68 million couriers delivered parcels during the Singles’ Day period, with some delivering more than 200 parcels per day.
• Average value per parcel reduced from RMB 236 in 2011 to RMB 184 in 2016
• Guangzhou ranks first in terms of the number of parcels sent
• The cities with the largest number of snack orders are Wuhan, Shanghai and Beijing
• 60 orders were made at the world highest Cainiao terminal, Mount Everest. Of which, the most expensive order is a pair of Dr. Martens
• The cities with the most requests of goods returns are Nanchang, Wenzhou and Hefei
22 Source: Alibaba, compiled by Fung Business Intelligence
2,680,000 COURIERS
23
Milestone Company background • JD Logistics is the wholly-
owned logistics unit of JD.com
1998 Richard Liu established Jingdong Century Trading Co., Ltd in Beijing
2004 Jdlaser.com, a B2C platform, went online
2007 Company name was changed to Jingdong Mall. 360buy.com is the new domain name. JD started to run their own logistics team
2009 Jingdong Mall purchased a land with an area of 140,000 sq metre for logistics usage
2010 Jingdong Mall started to offer same day delivery services to selected cities
2011 Jingdong Mall received Round C funding of US$1.5 billion and invested in establishing a central distribution centre
2012 Jingdong Mall started to run their own line haul truck delivery to transport cargo between cities
2013 Company domain name was changed to JD.com
JD smart locker system was available in Beijing and Shenyang
2014 The first Asia No.1 logistics centre of JD starts operation in Shanghai. The smart logistics centre equips with automated system
2015 JD launched crowd-sourced delivery service, JD daojia
2016 JD announced a plan of using JD drone for rural e-commerce in 2017
JD gave a trial on robot delivery
Richard Liu revealed his digitized logistics plan for coming 12 years
JD daojia and Dada merged and formed a new crowd-sourced delivery company, named New Dada
JD opens their logistics services for e-sellers on JD platform and offers total logistics solution services to brand owners
Core services • Provide integrated
warehousing services, express delivery services and logistics analytics services
• Capable to handle small parcels, bulk cargo, cold chain products, etc.
Self-operated model:
JD.com invests heavily on logistics technology and strives for a higher level of customer satisfaction
Source: Head SCM, compiled by Fung Business Intelligence
24
Closing
Changes in shopping habits and consumer expectation are the key drivers for the upgrade of China’s logistics services
25 Source: compiled by Fung Business Intelligence
Traditional retail in the past: Consumers buy goods from stores
E-commerce in 90’s: Consumers started online shopping
E-commerce today: Consumers buy goods anytime, anywhere
B2B
C2C, B2C
B2C, B2B2C, O2O, C2C, C2B, C2M
Shopping habits Business models
Delivery
Project logistics operated by • Third-party logistics service provider, LSP • In-house logistics unit
• Line haul transportation • Express delivery
• Logistics parks, city depots, stores, pick-up points
• Technology for warehouse: automation, robots, IOT, wearable tech
• Data analytics services managing online and offline goods for same brand
• Logistics parks • Basic warehouse
functions
Warehouse
• Line haul transportation • To B: Warehouse to
warehouse • To B: Inter-city delivery to
depots
• Last mile delivery: • To B: Intra-city delivery to
store • To C: door-to-door delivery
+ crowd-sourced delivery + pick-up points + lockers
• Truck matching platform
“Pain” level of shoppers related
to logistics
Not applicable
Changes in shopping habits and consumer expectation are the key drivers for the upgrade of China’s logistics services (cont’d)
• Without proper order fulfillment, running e-commerce business would be
a nightmare
• E-tailers and brand owners are no longer satisfied with basic delivery and
warehouse services. They may either run their own logistics arm or look
for capable logistics partners who can provide total logistics solutions
• The line between express delivery services and other forms of delivery
services is blurring. Express delivery companies are facing keen
competition from the self-operated logistics units of e-commerce players
and other logistics counterparts, e.g. last mile solution providers, on-
demand services providers (e.g. takeaways, car sharing), line-haul delivery
companies, etc.
26
• Some express delivery companies are now moving up the value chain by diversifying their services from
providing basic last mile delivery to total logistics solutions and adopting logistics technology
• In 2017, it is expected more express delivery companies, logistics companies and retailers/ e-tailers will form
alliances, so as to achieving scaled economies, expanding market coverage and capturing a larger market share
• Finally, adopting data analytics is the one of the critical success factors for e-commerce logistics sector and
resolving the pain point of the online order fulfillment issue in China
Forthcoming
Has China’s line haul delivery sector been disrupted in the Internet era?
27 Line haul delivery
Last mile delivery
Parcels: 0 – 30kg
Cargo: > 30 kg
Source: compiled by Fung Business Intelligence
One of the major differences between last mile delivery and line haul delivery
28
Contact
Management Theories and Business Models
Winnie Lo
Senior Research Manager
Tel: (852) 2300 2488
Email: [email protected]
Fung Business Intelligence 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: (852) 2300 2470 Fax: (852) 2635 1598
Email: [email protected] http://www.fbicgroup.com/
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Though the Fung Business Intelligence endeavours to have information presented in this document as accurate and updated as possible, it accepts no responsibility for any error, omission or misrepresentation. Fung Business Intelligence and/or its associates accept no responsibility for any direct, indirect or consequential loss that may arise from the use of information contained in this document.
